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Euro Higher, but News Remains Negative

NEW YORK ( BBH FX Strategy) -- The dollar is mixed, with most of the losses coming against the European currencies. The euro made a new high for this move vs. the dollar on Tuesday but so far has been unable to build on it. Support appears to be building for a larger European Financial Stability Facility/European Stability Mechanism firewall ahead of this week's eurozone finance ministers meeting.

The Irish referendum is now set for May 31 and the latest polls indicate it will pass. Italy had a well received T-bill auction, but Prime Minister Mario Monti's support is flagging in latest polls and suggests difficulties ahead in pushing through labor reforms. Near-term resistance expected to come in near 1.34 and then 1.348, while support lies around 1.33.

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Sterling is broadly weaker, declining the most in five weeks against the euro after UK fourth-quarter GDP contracted a worse-than-expected -0.3% quarter over quarter. The dollar is flat against the yen, trading to a recent low of 82.61 before recovering back above the 83 level.

The Antipodeans are leading the selloff against the dollar, consistent with the drop in Asian shares. SEK is doing well despite NIER cutting this year's GDP forecast to 0.4% from 0.6%.

Global shares are mostly down as Asian stocks took their cue from Tuesday's decline on Wall Street. The MSCI Asia Pacific Index is down 0.5%, led by losses in China. The EuroStoxx 600 is flat, with banks down 0.6%.

Strains to the System

Numerous eurozone developments Wednesday are worth mentioning. All in all, we think the news stream underscores the same elements still weighing on the eurozone, as weak growth and strains in the financial system keep the debt crisis alive.

The euro so far has been unable to sustain Tuesday's break higher and may test support around 1.33. Headline eurozone M3 growth picked up in February to 2.8% year over year from 2.5% in January. However, private sector loans were weaker at 0.7% year over year vs. 1.1% in January.

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